Weekly property law round-up, 30 Oct - 5 Nov 2023

A new weekly series, covering any interesting property law decisions in State and Territory Supreme Courts, the County Court of Victoria, and the Land and Environment Court of NSW.

Memduh Cihan and Mehmet Cihan trading as trustees of the Cihan Family Trust ABN 43 973 762 406 v Cihan Family Pty Ltd [2023] NSWSC 1289 (30 October 2023)

Supreme Court of New South Wales (McGrath J)

EQUITY - Exceptions to indefeasibility of title - Fraud or unconscionable conduct - Transfer of interest in property by father at direction of adult son - Father unable to read or understand English

This was a case involving an allegedly fraudulent or unconscionable transfer of an interest in land, in which the plaintiff sought a declaration that the transfer was void and of no effect. Helpfully, it shows some difficulties that can arise in proving fraud to the standard required to void a transfer, and how pleading unconscionable conduct can be a fallback or alternative (as a rebuttable presumption of unconscionable conduct arises where a transactor is under a special disadvantage).

Kadir Cihan was alleged to have convinced his father Mehmet, who could not read English, to transfer a 27.38% interest in a property in the Sydney CBD, from a family trust to another company (referred to for convenience here as "Company B"). The financial arrangements of the family were fairly complex, but the overall impact of the transfer was that the benefit of the interest in the property had "overwhelmingly flowed to Kadir and his daughter" (at [60]), and much less so to Mehmet. As McGrath J put it, at [10]:

These proceedings arise from the circumstances in which the eldest son Kadir has taken advantage of his father Mehmet’s inability to understand fully the English language and his limited ability to understand sophisticated business arrangements. Kadir has caused Mehmet to enter into improvident arrangements which he did not understand and which have conferred benefits on Kadir and his own family which were not known about, understood or intended by Mehmet.

Company B had gained indefeasible title over the property on registration of the transfer: the Torrens system is a system of title by registration, and not merely a system of registration of title (Breskvar v Wall (High Court, 1971)). However, under s 42(1) of the Real Property Act 1900 (NSW), fraud is an exception to the usual rule (the Victorian equivalent is the Transfer of Land Act 1958 (Vic) s 42(1)) (at [103]-[104]).

The difficulty was that fraud must be specifically pled and particularised, and the plaintiffs were unsure of precisely how the alleged fraud had been effected -- e.g. when and how Mehmet had been misled by his son into making the transfer. Fraud under s 42(1) the RPA entailed actual fraud, personal dishonesty or mortal turpitude. This had to be proven on the balance of probabilities, having regard to the seriousness of the allegation per the Briginshaw rule (at [107]-[121]).

McGrath J held that fraud had not been proven to the requisite standard. The fact that the transaction was much more in Kadir's interests than Mehmet's, and that the latter could not remember the details of it, was not enough (at [136]).

However, the transaction was unwound on the alternative basis of unconscionable conduct -- as Mehmet's special disadvantage was proven, an equitable presumption arose that the transaction was the consequence of a special disadvantage. The onus fell to the defendant to prove that the transaction was legitimate. No evidence was led by the defendants, and as a result, the transfer was declared void and of no effect (at [142]-[148]).

Kam-Sui Ing v Australian Securities and Investments Commission & Anor [2023] VSC 632 (1 November 2023)

Supreme Court of Victoria (Ierodiaconou AsJ)

REAL PROPERTY - Mortgage - Loan paid off - Discharge of mortgage never lodged with register - Lenders now defunct

An interesting scenario: how can a registered proprietor get rid of mortgages over her property, which are incorrectly registered on the property title, if she paid off the loan decades ago, and the lender no longer exists?

The plaintiff had owned her home in Balwyn for decades. Two mortgages were registered on the property title, and the underlying loans had been paid off in around 1993. However, due to an error, the discharge had never been registered. The passage of time resulted in some significant difficulties:

• The plaintiff couldn't find any instruments of discharge, although they found some letters that suggested the loan may have been paid off (at [9]).

• The lenders, who were both building societies, were now defunct (at [11]).

• The relevant regulator, the Australian Prudential Regulation Authority (APRA) did not exist prior to 1998, and so had no records (at [12]).

• The firm which had managed both lenders' liquidations had destroyed any relevant records, as well over 7 years had elapsed, and the liquidator himself had retired 15 years ago (at [13]).

• The plaintiff made exhaustive efforts to find which organisation, if any, might have the power to discharge the mortgage (at [14]-[22]). The proceedings had been brought only after all avenues were exhausted and "inquiries had taken a Dickensian turn" (at [23]).

The Court has the power, under s 103(1) of the Transfer of Land Act 1958 (Vic), to order that the Registrar of Titles to amend the register. This extended to a power to order a correction where there is an error on the register, namely the failure to record the discharge of the mortgages (at [25]-[26]). Her Honour held that s 84(2) was not relevant, as it granted the Registrar, and not the Court, a power to amend the register.

Her Honour was satisfied that the loans had been paid in full. Alternatively, no demands for payment were made after mid-1993 when loan repayments ceased, and any action for recover would be statute barred (at [30]). The Registrar was ordered to remove the mortgages from the register.

O.R. Smee Pty Ltd (in liquidation) v Calkin [2023] NSWSC 1306 (3 November 2023)

Supreme Court of New South Wales (Schmidt AJ)

TORTS - Trespass to land - Order for possession and grant of injunction restraining any interference with possession.

A short and straightforward case, involving a registered proprietor seeking a writ of possession to recover land from the defendant, who had "first occupied the property in 2015...stores goods there without its permission or any lawful entitlement to enter or remain on the property...[and] which he has persistently refused to vacate" (at [2]).

The plaintiff relied on its common law right to exclude others from its land under the law of trespass, and the statutory process provided under the Uniform Civil Procedure Rules 2005 (NSW). I note that the Supreme Court of Victoria has a similar summary process under Order 53 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (see also r 66.03).

Schmidt AJ (at [12]) cited Break Fast Investments v PCH Melbourne (VSCA, 2007) to the effect that, where an injunction is warranted on the facts, damages will only be granted in lieu of an injunction in exceptional circumstances. Inter alia, the injunction would have to cause greatly disproportionate hardship to the party subject to it. Such circumstances were not present here: while the defendant had used the land to store vehicles for 18 years with the permission of one of the directors of the plaintiff company (now in liquidation), he acknowledged that he had no right to, or interest in, the land.

The declaratory relief sought by the plaintiff was not granted, as the grant of an order for possession made it unnecessary (at [14]).